WFH Raises Our Productivity on Horrible Weather Days
The "Climate Damage Function" Flattens Due to Innovation and Experimentation
I was born in Chicago and attended graduate school in Chicago. I lived in Boston for 8 years. I have experienced cold, nasty winter weather. Today, many parts of the U.S are experiencing terrible weather. How will this affect our average productivity?
Empirical research in economics continues to study how extreme weather affects our productivity. Dan Wilson of the Federal Reserve of San Francisco has written several excellent papers on this subject.
In this thread, I will ignore the supply chain logistics disrupted by short term shocks. If these shocks are anticipated, then inventories and hedging contracts can be used to hedge the risk. Cold Chicago winters can be anticipated! Such short term shocks can be offset the following week when inventories can be restocked.
Instead, I want to focus on white collar worker productivity. Commuting is always costly but on truly nasty winter days such commuting is even more costly. We lose more time and the stress from the commute ruins our productivity at the office.
A good empirical researcher can collect data on worker weekly productivity measured by “output per hour”. So, for an economics professor it could be measured by Substack words published per week (I’m kidding). The modern firm has measures of worker productivity. These measures can be correlated with extreme weather during the same week in the location where the worker lives.
Empirical climate data science scholars such as Marshall Burke have had great research careers measuring these correlations. They document that in the past that extreme weather is associated with lower worker productivity.
Such researchers then take the audacious step of predicting future climate change damage using these past correlations as laws of physics that will exist in the future. The main point of my 2021 Adapting to Climate Change book is that this pessimistic assumption is baloney!
The modern economy is always changing due to induced innovation and market price signals.
NOW , let’s consider how the rise of WFH (due to the COVID crisis) affects the past negative correlation between extreme weather and productivity.
Assume that 60% of the economy’s output is produced by WFH eligible workers. Roughly 35% of workers are able to engage in WFH. On a terrible weather day, these WFH stay home and function. Of course, some have young kids at home but on such a day, I claim that fortunate WFH workers get more work done than they would have they commuted in to the office.
This means that the past correlation such that bad weather lowers productivity attenuates as 60% of the economy has a strong day!
Of course , dentist appointments get rescheduled and many other nuisances occur but the bulk of the macroeconomy is insulated without anyone adapting by flying from Chicago to Malibu (warm and sunny) that day.
The “Doom and Gloomers” intentionally play down how our economy engages in a type of “shape shifting” to adapt to the serious challenges we face.
We are not passive victims here and we have a tremendous incentive to search out new adaptation strategies. The induced innovation incentives are huge here.
Note that I have stated a testable empirical hypothesis. Young scientists should test my claim that the damage caused by the same weather shocks is shrinking over time. Read our 2022 NBER paper that documents this fact in the case of place based flooding.